Had the same problem here, from the moment i upgraded the signal would dance between 1 and 3 bars, especially when wathing youtube and other data heavy tasks.Messing with bluetooth seemed to better things but not for long. The solution for me came from khenne's post: i set my d-link router from mixed b,g,n mode to g only - now the signal is steady and i can finally watch through any video in youtube
Hoping for a quick fix from apple though- instead of having to switch between n mode for my laptop and g mode for the less-than-perfect $10 os 3
To luvlabs re Touch not remembering wifi networks with SSID broadcast set to off: I have had my wifi set to not broadcast SSID since before I got my Touch and only had a problem when I initially got the Touch with it remembering the network. I told it to forget the network, and re-entered the network info and haven't had a problem since. Btw, I use WPA2 and have read in various places that Touch had problems with WEP though.
So that you don't think you are going crazy... I have the same problem. 2.2 worked great, like clockwork, but with the update to my iPhone, I can't find any signal at all where I previously had a full 4 bars. The reset made no difference. I sit at my computer (which shows 4 bars) and my iPhone finds nothing. This is a major problem, as I have several apps that require WiFi to sync.
It's kind of a mixed bag on whether or not the touch remembers networks with a hidden name. This has been going on before 3.0 came on the scene. I usually recommend people broadcast the name as it is of no value to network security hiding it.
WEP is a strange duck on the touch. If you set the password correctly, either 5 characters or 13 characters (128 bit only), it might work with a password. More reliably is to use the Key 1 hex code generated by the router.
BTW, I also use WPA2 and it is just far easier to implement across a number of wireless devices.